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The ESRI said it expects 2013 will be one of the toughest years yet for the Government to achieve its Budget targets.

Growth levels are well below forecasts from the time of the bailout plan, leaving the Government with less tax revenue than planned.

Spending has also been higher than planned, particularly in health and social welfare. There is also an extra €3bn in debt interest payments due this year.

The ESRI foresees a contribution to growth from the domestic economy for the first time in five years, driven mainly by business investment.

It said an extension of the Croke Park Agreement along the lines under discussion would help the Government meet its targets for 2014.

Speaking on RTÉ’s Morning Ireland, David Duffy, one of the authors of the ESRI's Quarterly Economic Commentary said that with lower-than-expected revenues reaching targets would be difficult but achievable.

Mr Duffy said: "I should say, we do think the Government will reach the target, but it does represent a challenge this year."

He said next year the challenge will be less, as the ESRI predicts growth picking up to 2.3%. He added that if the Croke Park extension is agreed on, it will provide momentum for 2014.

Mr Duffy also said the unemployment rate will fall a little this year, partly because of continued emigration, but also because of job creation.